Oil markets bearish ahead of OPEC+ meeting as alliance may stick to same output plan

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Updated 31 August 2021
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Oil markets bearish ahead of OPEC+ meeting as alliance may stick to same output plan

Crude prices slipped in trading on ahead of Wednesday's OPEC+ meeting where the group is forecast to stick to its planned increase of 400,000 barrels per day, ignoring pleas from Washington to turn on the taps more than the alliance planned earlier.

OPEC+, which includes Russia, meets on Wednesday evening at 18:00 Saudi Arabian time.

The group’s joint technical committee said it expects the oil market to remain in a 0.9 million barrel per day (bpd) deficit this year, before reaching a surplus of 2.5 million bpd in 2022 as it increases production in line with its earlier commitment.

Oil traders are largely bearish on higher oil prices despite concerns the market is increasingly susceptible to one-off disruptions in the current tight conditions.

Hurricane Ida has led to the closure of offshore oil platforms which has resulted in around 95 percent of Gulf of Mexico oil and gas production - 1.72m barrels of crude and 2.01bn cubic feet of natural gas output per day - being halted.

However, the latest snapshot from China, the world’s largest oil importer, has increased fears about the impact of the pandemic on demand as the country’s factory output grew at a slower pace than forecast in August while the country’s services sector contracted.

A survey of analysts by Reuters revealed the majority believe prices will remain comfortably below US$70 this year.

DBS Bank analyst Suvro Sarkar said: “With the Delta variant in play weighing on demand and price sentiment, overheating in oil prices is unlikely in the near term.”

The analysts predict an average price for Brent of $68.02 a barrel in 2021, down slightly from an earlier consensus of $68.76.

However, the more bullish in the market believe prices could jump 20 percent higher as the global economy, most notably international aviation, continues to reopen with the help of the Covid-19 vaccine.

Swiss bank UBS is forecasting Brent will hit a minimum of $75 per barrel before the end of the year.

Mark Haefele, chief investment officer with UBS Global Wealth Management, said: “We expect the structural tightness in the oil market to persist in the remainder of 2021, and we see the energy sector as one of the key beneficiaries of the global reopening. We maintain our forecast for Brent to climb to $75 per barrel or higher this year.”

Current OECD oil inventories, are well below the five-year average and are likely to fall further in the coming months as mobility improves with the global rollout of the Covid-19 vaccine.

Matt Maley, equity strategist at Miller Tabak, told CNBC this week that US crude could jump by between 20-50 percent this year.

He added the energy sector had outperformed the overall market by a large margin since last October.

Wednesday's OPEC + meeting comes as oil and gas producers were warned they should use current cash flow generated by steadily rising prices to speed up decarbonisation of their businesses.

Energy consultancy Wood Mackenzie said the “oil price windfall” had given producers had a “golden opportunity” to invest more in renewables.

Tom Ellacott, senior vice president of corporate research at WoodMac said: “It is incredibly rare for an industry to get a decades-long notice that its business is under threat. Not only does the oil and gas industry have the luxury of clear warning, it has significant cash flow coming its way from higher prices. The commodity price upcycle provides a golden opportunity to accelerate emissions reduction, with a clear financial framework.”

David Clark, vice president of corporate research at the consultancy added: “Many oil and gas companies willingly accept hedging costs to de-risk near-term cash flows. It’s time to hedge longer-term carbon risk with rising low-carbon investment.”

Clark said producers need to establish a financial framework for their transition away from fossil fuels that should include capital allocation between dividends and investment in both legacy oil and gas ventures and future low-carbon businesses.

The Wood Mackenzie Corporate Service estimates oil majors will allocate around 15 percent of their 2021 investment budget to renewables but said they needed to spend more. 

Brent crude futures for October, due to expire on Tuesday, fell 0.56 percent, to $73 a barrel at 6:04 p.m. Riyadh time. US West Texas Intermediate (WTI) crude futures were down 0.64 percent, at $68.77.


Red Sea’s oxygen balance under strain, experts warn

Updated 13 sec ago
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Red Sea’s oxygen balance under strain, experts warn

  • Scientists say warming waters, nutrient runoff and coastal development could quietly erode coral resilience

RIYADH: The Red Sea may not have dead zones, but its fragile ecosystem is vulnerable to oxygen depletion — a quiet decline that can undermine coral health and disrupt marine life.

Sea dead zones are hypoxic or low-oxygen pockets that form most often when nutrient pollution — especially nitrogen and phosphorus from farm runoff and wastewater — fuels blooms that ultimately strip oxygen from the water.

Experts say the risk is not inevitable, but it depends on earlier detection and tighter control of the conditions that drain oxygen from coastal waters.

A sea that relies on its own “breathing” is also a sea shaped by geography.

FASTFACT

DID YOU KNOW?

  • The Red Sea is naturally low in oxygen because of its warm waters and high salinity — making it especially vulnerable to further oxygen decline.
  • The Red Sea’s narrow Bab Al-Mandab strait limits deepwater exchange, meaning the basin largely depends on its own internal circulation to ‘replenish’ oxygen.
  • Saudi Arabia’s coastline features steep underwater drop-offs, allowing deep, oxygen-poor water to move closer to coral reefs near shore.

Matheus Paiva, a senior oceanographer, told Arab News that “the Red Sea’s shallow Bab Al-Mandab choke point limits deepwater exchange,” meaning oxygen replenishment depends heavily on internal overturning circulation.

He said this circulation is driven as surface waters flow north, cool, become denser and sink, helping ventilate deeper layers through vertical mixing.

Paiva said the Saudi coastline’s underwater topography makes the risk more immediate close to shore.

Coral reefs along Saudi Arabia’s Red Sea coast, where scientists say warm, salty waters and limited deep-water exchange can leave ecosystems vulnerable to low-oxygen stress. (Unsplash.com)

“Unlike regions with wide, gradual shelves, our coast features narrow fringing reefs that drop sharply into deep water via steep underwater cliffs and canyons,” he said.

“This ‘step-and-drop’ topography brings deep oxygen-poor water close to shore.”

Paiva said warming at the surface can intensify stratification and reduce vertical mixing. He said that can allow low-oxygen water to creep upslope and affect shallower reef zones.

How oxygen gets consumed faster than it’s replaced is where human pressure can tip the balance.

Carlos Duarte, executive director or the Coral Research and Development Accelerator Program at KAUST, told Arab News that the Red Sea’s baseline conditions create vulnerability. “Because of its warm waters and high salinity, the Red Sea is inherently low in oxygen and, therefore, vulnerable to processes that decline oxygen further.”

He said algal blooms and heat waves raise biological oxygen demand, linking low oxygen to coral mortality.

Duarte said human-driven nutrient and organic inputs can intensify these declines.

He said poorly managed urban development and aquaculture operations can contribute nutrient and organic loads that fuel algal blooms.

Coral reefs along Saudi Arabia’s Red Sea coast, where scientists say warm, salty waters and limited deep-water exchange can leave ecosystems vulnerable to low-oxygen stress. (Unsplash.com)

Duarte said that as bloom material decomposes, it strips oxygen from the water and can lead to hypoxia.

The Red Sea’s celebrated clarity reflects a naturally nutrient-poor system. “The risk is amplified because the Red Sea is naturally oligotrophic. It is nutrient-poor and crystal clear,” Paiva said.

He added that wastewater releases and heavy rain events that trigger flash floods can push large nutrient loads into coastal waters in a short time.

In turn, those pulses can threaten biodiversity and the marine environment that underpins tourism investments along the Kingdom’s Red Sea coast.

Seeing low oxygen coming — rather than reacting after the fact — is the promise of new monitoring and analytics.

Paiva said high-accuracy oxygen data still relies on direct measurements collected during vessel surveys.

Carlos Duarte, executive director or the Coral Research and Development Accelerator Program at KAUST.

“We still depend heavily on classic vessel surveys,” he said. Teams deploy multiparameter sondes to profile the water column and collect water samples to establish a baseline.

“This ‘water-truthing’ remains the industry standard for high-accuracy data,” he said.

Saeed Al-Zahrani, general manager for Saudi Arabia at NetApp, said continuous data can help teams intervene earlier. “Oxygen depletion is rarely sudden; it tends to build over time when conditions line up,” he said.

Al-Zahrani said AI can flag anomalies, learn what “normal” looks like in specific locations, and generate short-horizon risk forecasts.

He added that it creates a decision window — guidance on when to increase sampling, where to focus response efforts, and when to tighten controls around discharges.

Coastal development that reduces oxygen risk starts, Duarte said, with what never reaches the sea.

Duarte said Saudi Arabia’s west coast investments have an advantage compared with older coastal destinations: the opportunity to design sustainability into projects from the outset rather than trying to retrofit after degradation becomes evident.

Duarte said nutrient control is a direct lever to reduce oxygen-depletion risk. “Achieve circular economies where organic products and nutrients are recycled and reused in the system to avoid discharging nutrients to the marine environment,” he said.

Al-Zahrani said wastewater and environmental systems produce huge volumes of information, but fragmentation can slow decisions.

He said connecting data in near real time can help detect problems earlier and anticipate load spikes tied to rainfall, tourism peaks, or industrial activity.

Reef resilience depends on reducing stress before heat and low oxygen overlap.

Duarte told Arab News: “Coral reefs are extremely vulnerable to oxygen depletion.” He added that it can contribute to bleaching and mortality in a warmer ocean.

He said marine heat waves can worsen oxygen stress by reducing oxygen solubility and limiting ventilation of subsurface waters, while increasing oxygen demands of organisms.

Duarte said reducing nutrient inputs and managing reefs to avoid excessive growth of seaweed can build resistance.

He also said models that account for how waves and currents interact with reef topography — work he said is being developed at KAUST — can help guide restoration toward sites more likely to remain oxygenated during heat stress.